strategy+business Winter 2013 : Page 65

B E S T B U S I N E S S B O O K S 2 0 13 / C O M PA N Y S T O R I E S berg, whose death in 2006 severed the firm’s last close link with its founding values. Weinberg had run the firm with John C. White-head from 1976 to 1984, and then as the sole senior partner until 1990. His father, Sidney J. Weinberg, had led Goldman from 1930 to 1969 and had embodied the essence of relationship banking. During this era Gold-man Sachs’s distinctive values were lived every day, Goldman Sachs was known for being “greedy, but not long-term greedy,” and it was unique among the large firms for the care it lavished on clients. even though they were not codified until 1979, when Whitehead articulated them as 12 ethical principles. The firm was known for being “greedy, but not long-term greedy”—a catchphrase coined by a senior partner, epitomizing the firm’s orientation to sustained success for its clients and itself. Goldman was unique among the large firms on Wall Street for the care it lavished on its clients, and for its social network, which had been built on mutual trust and financial interdependence. Its selection and training of employees at all levels was the most rigorous and comprehensive in the industry. Mandis describes how all this changed because of the constant competitive pressure, the demand for growth and profit, and the occasional crisis. For ex-ample, 1994’s hundreds of millions of dollars in trading losses quickened the transformation of Goldman Sachs’s culture, as it required partners to dip into their bank ac-counts to recapitalize the business. Many partners chose to retire, considered a selfish move among those who remained. Scores of new partners were appointed, and the power dynamics of the partnership were disrupted. In the resulting turmoil, Jon Corzine, then an ag-gressive trader, demanded and got the title of CEO. He pushed for global expansion and argued for taking the firm public. Goldman Sachs became a limited liabil-ity company, a move that gave partners less skin in the game and made the firm more hierarchical, with an ex-ecutive committee that wielded considerable power. Ac-cording to Mandis, the collegial culture of the firm was significantly damaged during the 1990s, a process that continued as Corzine was forced out in a palace coup and replaced by Hank Paulson in 1998, and the firm went public in 1999. The Goldman Sachs IPO made its partners fabu-lously wealthy. It also eliminated the need for them to supply investment capital and assume risk. Meanwhile, the entry of commercial banks into investment bank-ing, and the rise of trading relative to investment bank-ing within the firm, created a sea change in the business. Goldman’s clients were now more likely to be private eq-uity firms and hedge funds than to be corporations and mutual funds. These new clients viewed Goldman Sachs as a counterparty to their trades, not as a trust-ed advisor. The core of the business shifted from rela-tionships to transactions. The firm, says Mandis, was becoming short-term greedy. Mandis does a meticulous job of teasing out the ef-fects that the changes in Goldman Sachs’s business have had on its culture and values during the past 20 years. He argues that its financial success notwithstanding, Goldman Sachs failed as a moral enterprise. In mak-ing decisions today, he says, the firm is guided not by its values but rather by what its lawyers judge legal. For its sympathetic yet unflinching study of a firm and an industry that has come to epitomize what is problematic about Western capitalism, What Happened to Goldman Sachs is hard to beat. best books 2013 company stories 65 Failing Forward Most firms realize that they are failing only when their financial results collapse. By then, they are in deep trou-ble, and many are unable to learn from their mistakes and recover. In Brick by Brick: How Lego Rewrote the Rules of Innovation and Conquered the Global Toy In-dustry, David C. Robertson, practice professor at the Wharton School of the University of Pennsylvania, tells the story of how Lego bucked the odds. Robertson traces Lego’s rise from the decision of a carpenter to begin making wooden toys in the remote farming town of Billund, Denmark, in the 1930s to its current position as an iconic brand and a leader in the global toy industry. Unsurprisingly, the rise was not without its dips: By the mid-1990s, Lego had be-come a “heavy institution” that had lost its dynamism and sense of fun, according to the founder’s grandson,

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